The Trials and Tribulations of the Employer Mandate

This commentary examines the reasons why an employer mandate is unlikely to be included in the health care reform package and the failure of the debate to address the concerns of middle-income employees.

As is often the case with political debate about complex topics, health care reform has found a single focus. Just about all that the media will cover these days is the haggling over the employer mandate as a means of achieving universal coverage. Every other issue in health care reform is taking a back seat; you have to forage through esoteric health specialty journals to find much mention of benefits, health plans, quality of care, or even cost containment.

Even the major national news sources seem to have lost the sense that all these components of reform are interrelated. For universal coverage to be achievable, for example, significant cost containment will have to occur. The media—which played an integral role in explaining the complexity of health care reform in past months—have now decided to oversimplify. This is not surprising, as the American public has steadfastly refused to engage this important issue in any depth. I wish the media had not abandoned their role as educators so easily.

The debate over employer mandates and universal coverage has been overtaken by ideological bickering. This is not surprising either, but it masks the complex issues that must be addressed if we are to achieve meaningful health care reform. And so the complex reasons behind the apparent failure to guarantee universal coverage through an employer mandate must be acknowledged.

Subsides: The Unrealistic Middle Ground

Ideology has so polarized the debate over employer mandates that even the compromise plans have no substance. The panacea in all four bills that have eked their way out of congressional committees is heavy reliance on subsidies for small businesses to increase the chances that those firms will provide health insurance to their employees.

The difficulty with widespread subsidies is that they add up quickly and, therefore, are likely to require broad-based taxes to fund. President Clinton has sworn off such taxes as politically unpalatable, but at least they make explicit who is paying for what. If subsidies are not funded by broad taxes, they tend to hide the fact that taxpayers pay for them. In other words, they are a hidden form of cost shifting, and cost shifting only perpetuates a significant problem with our current system of financing health care.

Moreover, a study released in June by the Center on Budget and Policy Priorities in Washington, D.C., argues that subsidies will become unmanageably high if too many middle-income families receive them. Yet most pundits agree that the middle class must be appeased if reform is to succeed. The middle class’s growing fears that its health insurance will be unaffordable, of course, lit the fire under reform a year or so ago.

The greatest problem with subsidies is that they will not make much difference for businesses that do not currently provide health insurance to their employees. In other words, without an employer mandate, subsidies will not help the country insure 95 percent of the population.

This is borne out by a 1994 survey of 2,400 small businesses by the University of Michigan School of Public Health: “Surprisingly, the majority of employers that do not offer health insurance to their employees are simply not interested in doing so. . . . [Such] companies . . . tend to be smaller, richer, and have a higher average hourly wage than companies that are interested [in offering health insurance to their employees].” So much of the reform debate has emphasized the lack of affordability of health insurance for small businesses—and certainly that is an important point for many businesses—but this extensive survey suggests that there is a broader philosophical resistance to mandated health insurance coverage.

Why Clinton’s Pitch Failed

President Clinton made two tactical errors in trying to pitch the employer mandate. First, he tried to divide the small business community. He had hoped that those small businesses currently offering health insurance to their employees would jump at the employer mandate because it would even the playing field with small businesses that did not offer health insurance to their employees. Small businesses who now cover their employees, he reasoned, are the biggest victims of the cost shifting that takes place when employees from firms without coverage use health care services.

This approach failed because of the above-mentioned philosophical scorn for the employer mandate. If the issue were “merely” affordability, Clinton may have succeeded in dividing the small business community. But the issue was, in part, antipathy to regulation by big government, and Bill Clinton cannot overcome that.

The second tactical error was the complexity of the Clinton employer mandate proposal. If the press can be criticized for simplifying the current debate, Clinton must also be criticized for confusing employers and employees alike by requiring that every firm cover its own employees. While this made perfect sense from an equity perspective, it made little sense in terms of simplicity.

Many small businesses do provide health insurance to their employees and dependents, but many of their employees choose instead to obtain health coverage from the larger organizations where their spouses work. With the end of this piggy-backing, these small businesses faced potentially enormous new expenses for health insurance under Clinton’s plan. It was not the mandate that fueled their opposition to the plan (after all, they provided health insurance), it was Clinton’s particular version of the mandate.

Clinton wanted to require every firm to cover its own employees because he wanted to appeal to big business as well. Unfortunately, the promise of relief from cost shifting was not enough to satisfy that legion of interests. Big business was concerned that the Clinton proposal, in a thousand little ways, was wresting control of their health care from them.<

Employees Lost in the Shuffle

Lost in the warfare over the employer mandate is the fact that the problems of the middle class that drove reform still remain. Numerous studies and articles show that Americans who have insurance are paying more and more for health care, either in the form of higher shares of premiums or higher out-of-pocket payments. A March 1994 survey in The Journal of the American Medical Association found that “one in five families reported problems paying medical bills.” To the researchers’ surprise, more than 70 percent of those families were insured.

In addition, another troubling trend is emerging. The Wall Street Journal reports that some self-insured employers are excluding their own employees from coverage if they are identified as having certain high-risk behaviors or conditions. This, of course, is a practice of insurance companies that Democrats and Republicans alike have assailed in health care reform discussions. Self-insured businesses’ exemption from insurance regulation gives them considerably more freedom than insurance companies now enjoy to de-insure employees.

Congress and Clinton face a difficult battle with big businesses, most of whom self-insure, on the extent to which they can control their own employees. Without universal coverage, excluding high-risk employees from health insurance coverage in self-insured firms may continue. We can only hope that Congress will remember employees as well as employers.

Conclusion

The battle over the employer mandate will continue. The 95 percent goal proposed in the Senate Finance Committee bill is pure politics. No one believes that the incentives (subsidies) will be strong enough to attract most employers. Addressing our problems with cost and access requires a deeper understanding of employers and employees than the congressional debaters are exhibiting.